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Real Estate Outlook: Housing Starts

Written by Carla Hill on Sunday, 22 May 2011 7:00 pm
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If recent statistics are any indication, the real estate market may not yet have hit bottom. Stan Humphries, Zillow chief economist, reports home values fell again by three percent in the first quarter of this year. He says this is "marking a pace of decline not seen since 2008 when the housing recession was at its worst. Home values fell one percent between February and March and 8.2 percent from March 2010. The cumulative decline in home values since the market peak is now 29.5 percent."

Demand continues to remain weak. This in turn has caused supply to be overabundant, especially in distressed home sales. Nearly 2 million homes are in the foreclosure process, with another 1.5 teetering on the edge. Zillow reports that slowly improving employment conditions and increasing rates of household formation could bring increased balance to the market.

Falling values and decreased demand have had a noticeable impact on builder confidence. The National Association of Home Builders (NAHB) reports that builder confidence has remained nearly unchanged for the past seven months.

NAHB Chairman Bob Nielsen reports it "has hardly budged over the past six months as persistent concerns regarding competition from distressed property sales, lack of production credit, inaccurate appraisals, and proposals to reduce government support of housing have continued to cloud the outlook. In addition, many builders in this month’s survey cited high gas prices as a further contributor to consumer anxiety and reluctance to go forward with a home purchase.”

The U.S. Commerce Department reports that housing starts and permits were both down in April and at lower levels than economists had predicted. The number of news homes built during April was down by 10.6 percent.

The bright spot of the new construction market is in the 55+ market, which had previously stalled, but now reportedly saw a rise in first quarter 2011 apartment production.

The NAHB's David Crowe reports that builder survey responses "also indicate that demand for existing 55+ rental apartments is running ahead of production. A shortage may even emerge in that segment of the market, if pent-up demand emerges quickly but builders’ inability to access credit continues.

The leaven in the loaf, however, comes from Ken Simons, a New Jersey developer and chair of the NAHB 50+ Housing Council Board of Trustees, who says, “Builders in the 55+ market are still finding that some customers are hesitant to buy. Many prospective 55+ buyers are having trouble selling their existing homes, a problem often made worse by low appraisals.” 

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